The Shifting Issues of International Tax

International tax issues, including continuing pressures from tax competition, are increasingly center stage, not only in advanced and emerging economies, but in developing countries too. Indeed for them tax issues are potentially even more important, since they raise more of their overall revenues from corporate taxation.

The issues are many and complex. Profit-shifting, though transfer pricing and financing arrangements with similar effect, has attracted particular attention. But there are others too. A concern in many developing countries, for instance - not least those with large natural resource discoveries - is that disadvantageous treaty agreements, with very low withholding rates on some outward payments, may leave them less able to secure revenue than they would have been with no treaty at all.

Low tax jurisdictions play a central role in all this. Some see them as mitigating the adverse impact of high taxes elsewhere; some, perhaps most, as simply undermining tax systems elsewhere. There are sensitive issues of national sovereignty here. But there seems at least to be increasing acceptance that countries should provide enough information to allow others to implement their own residence-based tax systems. And it needs to be remembered that many forms of international tax avoidance are possible only because of provisions adopted by large advanced countries themselves.

With such strong international interdependencies of policies, it is likely that all can benefit from some degree of cooperation. Ultimately, information exchange alone is not enough: it achieves little if tax rates are competed to zero. The idea of a World Tax Organisation with wide powers to shape the international tax regime is, for the moment, chimerical. And regional efforts at some form of coordination have yet to bear much fruit. The challenge remains to develop forms of cooperation that have broad enough participation to be effective, are targeted enough to be realistic in their objectives, and offer enough demonstrable benefit to all to be feasible. The urgent revenue needs of many countries makes the case for this stronger now than ever.